Nigeria Just Changed the Rules: 5 Tax Traps Every Company Must Now Avoid
Nigeria has enacted its most comprehensive tax overhaul in over three decades with the passage of the Nigeria Tax Act (NTA) and three companion administration laws – the Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA) – signed into law on June 26, 2025, and effective January 1, 2026.
This sweeping reform consolidates numerous scattered tax statutes into a unified framework aimed at simplifying compliance, expanding the tax net, and aligning Nigeria’s fiscal regime with global standards such as OECD Pillar 2 minimum tax rules. “The tax reforms will protect low-income households and support workers by expanding their disposable income,” said President Bola Tinubu in a statement.
Local companies, multinational companies (MNCs), cross-border investors, and contractors with operations in Nigeria now face a dramatically changed tax landscape that reshapes risk management, investment structuring, and operational decisions.
Crucially, the Act clarifies that income can be taxed not only in the company’s name but also in the names of principal officers, representatives, or liquidators. This expansion of tax liability means companies, both small and large, must carefully monitor all types of gains and transactions to ensure none fall outside compliance.
The stakes are high, as failure to anticipate these changes can trigger unexpected tax liabilities and compliance burdens that erode profitability and strategic agility.
Here are five critical tax traps all companies operating in Nigeria must avoid under the 2025 Nigerian Tax Reform Acts, based on insights and detailed provisions of the legislation. Alongside, actionable recommendations equip boards and C-suites to convert tax complexity from a threat into a competitive advantage.
- The Wider Permanent Establishment (PE) Net: Beware the Force-of-Attraction Rule
The NTA codifies a force-of-attraction principle that broadens what constitutes a Nigerian PE. Once a non-resident has a PE in Nigeria, all revenue related to the contract connected to that PE, even portions executed offshore, such as engineering, procurement, or digital delivery, are subject to Nigerian tax. This marks a departure from earlier rules that often limited the taxable footprint strictly to onshore activities.
When actual profits attributable to Nigerian activities cannot be reliably measured, the Nigeria Revenue Service (NRS) is empowered to impose a minimum profit margin, with taxes no lower than 4% of Nigerian-sourced revenue.
Why this matters:
- The traditional strategy of splitting Engineering, Procurement, and Construction (EPC) contracts across jurisdictions or carving out management services to avoid Nigerian PE risk is now precarious.
- Software licences or digital service models routed through low-tax hubs will face fresh scrutiny.
- Treaties need revaluation to assess their protective reach against this expanded PE definition.
Recommendations:
- Immediately review contract models across the value chain to identify potential unintended Nigerian PE triggers.
- Reassess transfer pricing documentation and Permanent Establishment exposure in light of the imputation rules.
- Engage tax advisors to explore Advance Pricing Agreements or renegotiate treaty protections before the 2026 budget cycle.
2. Effective Tax Rate (ETR) Top-Up: Pillar 2 Enforced, Small Companies Now Benefit
Aligning with OECD’s Pillar 2 rules, the Nigerian tax regime introduces a 15% minimum effective tax rate (ETR) on Nigerian profits for large multinational enterprise (MNE) groups (global turnover > €750 million or Nigerian turnover > ₦50 billion). Should foreign affiliates within the group pay less than this threshold abroad, the Nigerian parent company must “top up” the difference, effectively neutralizing tax rate arbitrage.
Under the reform, small companies are now defined more generously—those with annual gross turnover up to NGN100 million (previously NGN25 million) and fixed assets below NGN250 million qualify. Such entities are exempt from Companies Income Tax (CIT), Capital Gains Tax, and a newly introduced Development Levy. However, companies that unwittingly exceed these thresholds or misunderstand asset valuation rules may face sudden tax exposure and liabilities. Accurate turnover and asset tracking is therefore essential
Implications:
- Multinational groups must adopt a holistic view of tax across jurisdictions to anticipate cash flow impacts from top-up taxes.
- This carve-out places Nigeria among the relatively few African countries enforcing global minimum tax rules stringently.
- Companies that unintentionally exceed the NGN100 million turnover or NGN250 million asset thresholds can abruptly lose their small company status, triggering liability for multiple taxes including the Development Levy.
- More companies now benefit from full exemption on CIT, CGT, and the Development Levy, which lowers their overall tax burden and can improve cash flow.
- Small companies may opt out of the exemption to register for tax voluntarily (e.g., to claim input VAT refunds), but this requires awareness and conscious action from business leaders.
Action Points:
- Treasury and tax teams must build comprehensive group-wide ETR models incorporating Nigerian and foreign profits to forecast potential top-ups.
- Consider filing for Advance Pricing Agreements (APAs) with Nigerian tax authorities to establish acceptable transfer pricing methodologies that mitigate disputes.
- Companies should periodically reassess their turnover and assets, especially near the threshold boundaries, to anticipate loss of exemption well in advance and prepare cash flow and tax planning accordingly.
- Engage tax experts to clarify asset valuation issues, especially for companies with diverse or depreciable assets, and to interpret how newly introduced measures like the Development Levy affect taxable profits.
3. Capital Gains Tax (CGT) Follows the Shares: Indirect Transfers Taxed
For the first time, Nigeria’s tax law explicitly applies a 30% capital gains tax on indirect transfers of Nigerian assets. This means that selling offshore companies whose value is substantially derived from Nigerian assets (e.g., real estate, companies with Nigerian operations) triggers CGT at corporate rates, unless shielded by a tax treaty.
Personal capital gains from such disposals are taxed progressively according to individual income tax bands rather than the flat corporate rate.
Why this is a trap:
- Mergers & Acquisitions (M&A) and private equity (PE) deals structured through holding companies offshore no longer provide a tax shelter.
- Valuation waterfalls and exit scenario modeling must integrate Nigerian CGT implications.
- Lack of treaty relief can significantly increase transaction costs.
Recommendations:
- Early in deal planning cycles, conduct thorough tax due diligence focusing on Nigerian asset exposure.
- Work with legal and tax counsel to structure transactions to optimize CGT treatment, including treaty reliance where applicable.
- Communicate proactively with investors to reflect adjusted after-tax returns in fundraising or exit plans.
4. Simplified 4% Development Levy and New Incentives: Trading Multiple Levies for a Flat Fee
Nigeria has abolished several layered earmarked levies and replaced them with a consolidated 4% flat Development Levy on assessable profits, exempting small and non-resident companies. This reduces compliance complexity but shifts the cost base for many firms.
Historic incentives, such as the Pioneer Status tax holiday, have been replaced by the Economic Development Incentive (EDI): a 5% tax credit on qualifying capital expenditures over five years, with a possible extension of another five years only if all profits earned in the first term are reinvested in Nigeria.
Considerations:
- Capital-intensive projects (manufacturing plants, logistics hubs, renewable operations) can claw back up to 25% of capex over a decade, enhancing cash flow forecasts.
- Free Zone exporters retain tax immunity given they export at least 75% of sales. Taxation triggers if domestic sales exceed 25% post-2027, adding complexity to market entry and product distribution strategies.
Advice:
- Evaluate the trade-off between the flat levy and prior incentives—not all companies benefit equally.
- File for EDI pre-production capex certificates promptly to start the clock on benefits.
- Design investment plans aligned with reinvestment rules to unlock extended incentive periods.
5. Compliance Modernization: Digital Invoicing, ERP Upgrades & Monthly Reporting
The Nigeria Tax Administration Act (NTAA) complements the NTA by mandating digital transformation of tax compliance.
The Act clarifies that Personal Income Tax (PIT) applies to worldwide income of resident individuals, defining residency by economic ties and family presence. For companies, this means tax liability could be triggered by digital presence or economic nexus previously ambiguous under old laws.
Failure to consider these specifics means local and international companies may be caught off guard by unexpected taxable obligations in Nigeria. The lew demands:
- Mandatory electronic invoicing and VAT fiscalization.
- Integration of tax reporting into ERP systems.
- Monthly submission of development levy and VAT returns.
- Bank transaction reporting, including automated alerts on high-value activities (e.g., transactions exceeding ₦25 million).
- Establishment of a Tax Ombudsman to resolve disputes.
Why this is a trap:
- Paper-based and fragmented compliance regimes are ending.
- Real-time data exchange increases audit likelihood, administrative penalties, and compliance costs for unprepared firms.
- ERP and accounting systems must be upgraded for automation and integration.
Recommendations:
- Upgrade enterprise resource planning and financial systems to support monthly electronic tax filings and digital invoicing.
- Train finance teams on new reporting and documentation standards.
- Utilize the 6-month lead time (before Jan 2026 implementation) to conduct dry runs and data quality audits.
- Engage technology partners familiar with Nigerian tax software interfaces.
Executive Board Scorecard: Five Strategic Questions
As 2026 approaches, boards and executive teams must integrate tax strategy into core commercial decision-making:
Transforming Tax Complexity into Competitive Advantage
Nigeria’s 2025 Tax Reform Acts represent a fundamental reset of the country’s fiscal playing field. While compliance burdens inevitably rise, the reforms also create a more transparent, predictable, and competitive tax environment—favoring local and foreign companies that understand the new rules early and embed them in strategic planning.
“90% of Nigerians support the tax reform bills. Successful implementation will depend on awareness and trust,” says Taiwo Oyedele, Chair of the Presidential Fiscal Policy and Tax Reform Committee.
Boards, tax, finance, and legal teams should proactively:
- Refresh Permanent Establishment and Transfer Pricing analyses in Q3 2025.
- Engage tax authorities on Advance Pricing Agreements and EDI certification.
- Upgrade ERP and financial reporting systems for e-invoicing and monthly submission deadlines.
- Reassess M&A and deal structuring under new capital gains tax provisions.
- Educate staff and stakeholders on evolving tax regulations and dispute resolution mechanisms.
By anticipating these tax traps, local and foreign companies, whether small or large, can turn a compliance curveball into a growth accelerator, positioning Nigeria as a transparent hub in Africa’s booming economic landscape.
AMENA AFRICA, Here to Help You
AMENA AFRICA is ideally positioned to help your business navigate Nigeria’s new tax rules with confidence and clarity. Our team of tax professionals stays up-to-date with every regulatory shift, including the revised small company definition and expanded exemption thresholds under the 2025 reforms.
We conduct thorough reviews of your financial records, turnover, and asset valuations to ensure your business remains compliant and fully benefits from available exemptions—such as relief from Companies Income Tax and the Development Levy. Through ongoing monitoring, our experts anticipate when you might approach the turnover or asset thresholds, so you are never caught off guard by sudden tax exposure or new liability triggers.
Beyond compliance, our tailored tax planning and strategic advisory services are designed to maximize your operational efficiency in this new regulatory environment. We guide you on the nuances of voluntary opt-out provisions, help establish robust internal control systems for record-keeping, and provide training to your finance team on the latest filing and reporting standards under the Nigeria Tax Administration Act, 2025.
With AMENA AFRICA as your partner, you gain peace of mind, knowing that your company’s tax strategy is proactive, precise, and fully aligned with your business growth objectives in Nigeria’s evolving tax landscape.